Answer:
Current Yield is 5.74%
Explanation:
Current yield is the ratio of coupon payment of a bond to its current market price. It is calculated by using coupon payment and the current market value of the bond.
Coupon Payment = $1,000 x 5.6% = $56
Current market price = $975
Formula for Current yield is as follow
Current Yield = Annual Coupon Payment / Current Market Price
Current Yield = $56 / $975
Current Yield = 0.0574% = 5.74%
Beck Kubiak wishes to purchase new appliances for her home. The total cost for the appliances is $2,900. To finance the purchase, Becky must pay 20% down, with the balance being financed with a 24-month installment loan with an APR of 8.5%. Determine Becky's total finance charge and her monthly payment
Answer:
total finance charge = $203.08
her monthly payment = $105.13
Explanation:
The Loan amount = Cost of Appliance - Down Payment
= $2,900 - ($2,900 × 20%)
= $2,320
Change the APR to nominal compounding,
Using a Financial Calculator, this will be :
8.50 % Shift EFF%
12 Shift P/YR
Shift NOM % = 8.19%
Then calculate the monthly payment as follows :
Pv = $2,320
n = 24
p/yr = 12
r = 8.19%
Fv = $0
PMT = ?
Using a Financial Calculator, monthly payment, PMT is $105.13
Total Finance Charge will then be obtained from the amortization schedule from the First Period to the 24th Period and this will be : $203.08.
New Harvest Bakery acquired all the outstanding common stock of Red Rock Bakery for $69,300 in cash. The book values and fair values of Red Rock's assets and liabilities were as follows: Book Value Fair Value Current assets $ 28,700 $ 22,300 Property, plant, and equipment 47,800 52,600 Other assets 3,500 5,800 Current liabilities 15,100 14,900 Long-term liabilities 29,000 21,400 Calculate the amount paid for goodwil
Answer:
Amount paid for goodwill is $24,900
Explanation:
Note: The data in the question are merged and they first sorted before answering the question as follows:
Book Value Fair Value
Current assets $ 28,700 $ 22,300
Property, plant, and equipment 47,800 52,600
Other assets 3,500 5,800
Current liabilities 15,100 14,900
Long-term liabilities 29,000 21,400
The explanation of the answer to the question are now provided as follows:
Generally, goodwill refers to an intangible asset of a company and it can be in different for such as intellectual property, brand, commercial secrets, and reputation.
Amount paid for goodwill of an acquired company can be estimated by deducting the fair value of net identifiable assets acquired from the consideration paid.
For this question, fair value of net identifiable assets can be calculated as follows:
Particular Fair Value ($)
Current assets 22,300
Property, plant, and equipment 52,600
Other assets 5,800
Current liabilities (14,900)
Long-term liabilities (21,400)
Fair value of net asset 44,400
Therefore, we have:
Amount paid for goodwill = Cash consideration paid - Fair value of net asset = $69,300 - $44,400 = $24,900
The marginal revenue of the last bowl of soup a restaurant (in a perfectly competitive market) produced was $11 and its marginal cost was $4. Each time the restaurant produces an additional bowl of soup the marginal cost increases by 20% relative to the previous bowl. The restaurant should:
Answer:
The restaurant should:
decrease its marginal cost in order to maintain the marginal profit and ensure that the marginal cost is not more than the average cost.
Explanation:
Company A's marginal cost represents the incremental costs incurred when the company produces an additional unit of its good or service. This company's marginal cost is calculated by dividing the total change in the cost of producing more goods by the change in the number of goods produced. For example, if the cost of production increases by $120 when additional 10 units of goods are produced, then the marginal cost = $12 ($120/10).
why must we always boil our drinking water during and after a cyclone has passed
Answer:
Sometimes following a disaster, a boil water alert is issued for areas connected to mains scheme water because the mains water may be unsafe to drink or cook with.
If a boil water alert has been issued, it is essential you follow this warning to prevent illness.
To prepare water for drinking and food preparation, you should heat the water to a rolling boil for at least 1 minute using a stove or kettle and then allow it to cool. This will help to kill any bacteria.
Be sure to keep children clear from any boiling water until the water has cooled down to room temperature.
Once it has cooled it should be placed in the fridge in a clean container with a lid.
Under no circumstances should you drink or cook with water that has not been boiled until the alert is lifted.
Alternatively you can use bottled water.
HOPE THIS HELPS !
PLEASE MARK IT BRAINLIEST!!
BMM Industries pays a dividend of $2 per quarter. The dividend yield on its stock is reported at 4.8%. What is the stock price?
On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 1/10, n/30. Flores uses the gross method of accounting for cash discounts. What is the correct entry for Flores on November 10
Answer:
Nov 10,
DR Accounts Receivable .........................$8,000
CR Sales ......................................................................$8,000
(To record credit sale)
Explanation:
On the day that Flores Mills sold the carpet, they are to record this as a credit sales as cash was not paid. The correct entry would be to debit Accounts receivable and credit Sales.
The discount will only be applied if/when the customer settles the account.
Sheridan Company issues 3600 shares of its $10 par value common stock having a fair value of $20 per share and 5600 shares of its $10 par value preferred stock having a fair value of $20 per share for a lump sum of $205400. What amount of the proceeds should be allocated to the preferred stock
Answer:
$125,026
Explanation:
Common Shares 3,600
Fair value $20
Total market value of common stock $72,000
Preferred shares 5,600
Fair value $20
Total market value of preferred stock $112,000
Lump Sum amount $205,400
Amount of proceeds should be allocated to the preferred stock = 205,400 * (112,000 / (72,000 + 112,000) ) = $125,026
a stock split increases the number of authorized issued and outstanding shares of stock coupled with a proportionate reduction in the
Answer:
stock price
earning per share
dividends per share
Explanation:
A stock split is when a company increases the number of its shares outstanding.
for example if a company has 4 million shares outstanding at a price of $20, earning per share is $1 and dividend per share is $0.50. this company announces a 2 for 1 split :
the number of outstanding shares becomes 2 x 4 million = 8 million
stock price becomes = $40 / 2 =$20
earning per share = $1 / 2 = $0.50
dividend per share = $0.5 / 2 = $0.25
The current spot exchange rate Singapore dollar against U.S. dollar (SGD/USD) is 0.6000. After considerable study, an investor concluded that the Singapore dollar will appreciate against the U.S. dollar in the coming 90 days, probably to about 0.7000. She has the following options on the Singapore dollar to choose from:
Option Strike price Premium
Put on SGD 0.6500 0.00003
Call on SGD 0.65 0.00046
1. Should the investor buy a put on Singapore dollars or a call on Singapore dollars?
2. What is the investor's break-even price on the option purchased in part a?
3. Using your answer from part a, what is the investor's gross profit and net profit (including premium) if the spot rate at the end of 90 days is indeed 0.7000?
4.Using your answer from part a, what is the investor's gross profit and net profit (including premium) if the spot rate at the end of 90 days is 0.8000?
Answer:
i) Investor should buy a call option as expected spot price on SGD after 90 days is 0.7 which less than the strike price 0.65 under call option.
II) Break-even price on option selected
Strike price under call option 0.65000
Add : Premium 0.00046
Break even price 0.65046
iii) Actual spot rate after 90 days 0.70000
Less: Strike price under call option 0.65000
Gross profit 0.05000
Less: Call option premium 0.00046
Net profit 0.04954
iv) Actual spot rate after 90 days 0.80000
Less: Strike price under call option 0.65000
Gross profit 0.15000
Less: Call option premium 0.00046
Net Profit 0.14954
Top managers of are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision:
Total Blue-Ray Discs DVD Discs
Sales Revenue $432,000 $305,000 $127,000
Variable Costs $246,000 $150,000 $96,000
Contribution Margin $186,000 $155,000 $31,000
Fixed Costs:
Manufacturing $128,000 $71,000 $57,000
Selling and Administrative $67,000 $52,000 $15,000
Total Fixed Costs $195,000 $123,000 $72,000
Operating Income (loss) $(9000) $32,000 $(41,000)
Total fixed costs will not change if the company stops selling DVDs.
Required:
a. Prepare a differential analysis to show whether Movie Street should drop the DVD product line.
b. Will dropping DVDs add $41,000 to the operating income? Explain.
Answer:
a)
Blue-ray discs Blue-ray discs Differential
and DVD discs only amount
Sales Revenue $432,000 $305,000 $127,000
Variable Costs ($246,000) ($150,000) ($96,000)
Contribution M. $186,000 $155,000 $31,000
Fixed Costs:
Manufacturing ($128,000) ($128,000) $0S&A expenses ($67,000) ($67,000) $0Operating Income ($9000) ($40,000) $31,000
b) Will dropping DVDs add $41,000 to the operating income?
No, dropping the DVDs product line will decrease operating income by $31,000, resulting in a total loss of $40,000. Even though the DVDs product line by itself is not profitable, it absorbs a large percentage of the fixed costs and if you get rid of it, all the fixed costs will be absorbed by the Blue-rays product line.
A car rental agency rents 190 cars per day at a rate of $30 per day. For each $1 increase in rate, 5 fewer cars are rented. At what rate should the cars be rented to produce the maximum income? What is the maximum income?
Answer:
At what rate should the cars be rented to produce the maximum income?
$34 per day (170 cars rented)What is the maximum income?
$5,780Explanation:
number of cars rented rental price total income
190 $30 $5,700
185 $31 $5,735
180 $32 $5,760
175 $33 $5,775
170 $34 $5,780
165 $35 $5,775
160 $36 $5,760
155 $37 $5,735
150 $38 $5,700
145 $39 $5,655
140 $40
135 $41
130 $42
Suppose the country of Stan has fixed its exchange rate to the dollar. The official exchange rate is 0.50 U.S. dollars per rupee. Suppose market conditions are such that the actual equilibrium exchange rate is 0.25 U.S dollars per rupee.
1. You are a tourist in Stan. Something you wish to buy costs 100 rupees. What is the price at official exchange rates? ___________ Are products bought from Stan a good deal?
2. You are a tourist in Stan. Something you wish to buy costs 100 rupees. What is the price if you could buy at the equilibrium exchange rate?
3. Will foreigners want to demand Stan’s rupees to buy goods at the official rate? Explain.
4. Will people in Stan want to buy U.S. goods at the official exchange rates? Will they being supplying or demanding their rupees?
5. Will the monetary authorities in Stan have to buy up a surplus of their currency or sell their currency to meet a shortage of their currency to keep the exchange rate at 0.50 dollars per rupee?
Answer and Explanation:
1. At 0fficial exchange rate:
100 * 0.5 = $50
what I want to buy would be purchased at $50
at market exchange rate:
0.25 x 100 = $25
products bought from this place are not a good deal as I am paying more than the market exchange rate.
2. at equilibrium exchange rate:
100 x 0.25% = $25
the price is $25
3. from answers 1 and 2, I will not want demand Stan's rupees. the products are costly to get.
4. Stan's currency is obviously overvalued. the people from this country now has increased purchasing power so they can purchase goods in dollars, therefore they would be supplying their currency.
5. They will have to buy up the surplus of rupees so that they can easily keep up with maintaining the rupee at half a dollar.
The expected average rate of return for a proposed investment of $625,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $250,000 for the 5 years, is which of the following?
a.16%
b.50%
c.40%
d.18%
Answer:
C. 40%
Explanation:
Which group of people would be the most concerned about the operating areas that have contributed to the success of the firm and which have not?
Answer:
Management / Competitors.
Explanation:
The company's management is configured as the group of people who would be most concerned with the effectiveness of the management of the operational areas to achieve the company's success. Effective management must understand the organization as a system that must be integrated so that organizational activities flow effectively to achieve objectives and goals, in order to coordinate, control, monitor and review activities and subordinates so that the organization generates positive results in the market.
Say the marginal tax rate is 30 percent and that government expenditures do not change with output. Say also that the economy is at potential output and that the deficit is $200 billion.Required:a. What is the size of the cyclical deficit?b. What is the size of the structural deficit?c. How would your answers to a and b change if the deficit was still $200 billion but output was $200 billion below potential?d. How would your answers to a and b change if the deficit was still $200 billion but output was $100 billion above potential?
Answer:
a. The Cyclical deficit refers to the deficit arising from the difference between the potential output and the actual output.
The question assumes that the economy is producing at potential which means actual output equals potential output.
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * 0
Cyclical Deficit = $0
b. Structural deficit occurs even when the economy is at potential because it refers to Government deficits that happen when the economy is experiencing normal activity.
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - 0
Structural Deficit = $200 billion
c. Output is $200 billion below potential
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * 200
Cyclical Deficit = $60 billion
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - 60
Structural Deficit = $140 billion
d. Output is $100 billion above potential
Cyclical Deficit = Tax rate * ( Potential Output - Actual Output)
Cyclical Deficit = 0.3 * -100 as actual is above potential
Cyclical Deficit = -$30 billion
Structural Deficit = Actual deficit - Cyclical deficit
Structural Deficit = 200 billion - (-30)
Structural Deficit = $230 billion
Martine Piccirillo works as the payroll clerk for Centinix, a security company that hires many part-time and temporary workers who are paid on an hourly basis. What law governs the hiring or documenting of these workers?
Answer:
IRCA(Immigration Reform and Control Act of 1986)
FLSA(Fair Labor Standards Act)
Explanation:
The Immigration Reform and Control Act (IRCA) forbids employers from recruiting/hiring any foreign citizen that doesn't have a proper work authorization. That means that all Centinix's employees should have a green card.
The Fair Labor Standards Act (FLSA) sets the federal standards for minimum wage, overtime pay, record keeping, and child labor. This includes any full time or part time worker employed by Centinix.
A question that respondents can answer in an almost unlimited number of ways is called a ____ question.
Answer:
open question
Explanation:
An open question allows each respondent to interpret the final answer differently.
On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include a. payments for cash dividends b. amortization of premium on bonds payable c. receipts from the issuance of common stock d. receipts from the sale of investments
Answer:
b. amortization of premium on bonds payable
Explanation:
The Indirect method reconciles the Operating Income to the Operating Cash Flow by adjusting the Operating Income for (1) Non-Cash Items previously added or deducted from the Operating Income and (2) Changes in working capital items.
The managerial purpose of setting objectives include: Select one: a. Converting the strategic vision into specific performance targets b. Establishing deadlines for achieving performance results c. Challenging the organization to perform at full potential and deliver the best results d. All of these
Answer: d. All of these
Explanation:
Objectives are very important in ensuring that a company achieves that which it wants to achieve. With an objective in mind, the company is able to set deadlines that it can work towards to enable it achieve performance results. Without objectives, there would be no aim in sight to work towards which means that performance cannot truly be measured.
Objectives also help turn a company's strategic vision into actual performable targets which will enable the company achieve its long term goals by breaking the activities into doable segments.
Finally with an objective in mind, employees will be spurred towards it which will enable them to try to perform at full potential and deliver the best results so that they may reach the objectives set.
One of the least desirable and routine tasks members of your team must do is taking minutes (notes) at team meetings. Proof that this task is disagreeable can be seen in the repeated arguments among team members before every meeting about who should take the minutes. Which of the following would be the most effective way for the team to address this stuation?
A. Ask your manager to decide in order to minimize any personal bias among team members.
B. Randomly assign a person to bé the official note taker at the beginig of each meeting
C. Create a rotating assignment so each team member shares note taking.
D. Assign note taking to whichever person enters last at each
Answer:
C. Create a rotating assignment so each team member shares note taking.
Explanation:
In the case noted in the question above, there is a situation that could be unpleasant if it were decided by some type of bias.
Therefore, the most appropriate alternative for the team to address this situation would be to create a rotating assignment for each team member to share the notes. This way it would not happen that a team member is always chosen to perform a task that causes dissatisfaction in the whole team. Creating a rotating assignment to carry out the task would guarantee the uniformity of the task assignment and avoid possible dissatisfactions, inequalities and interpersonal conflicts that could arise.
Someone offers to buy your car for four, equal annual payments, with the first payment coming 2 years from today. If you think that you could sell your car to another purchaser for an immediate payment of $9,000 and the interest rate is 10%, what is the minimum annual payment that you would accept from this buyer?
Answer:
4i8484884858585848484i
What are the portfolio weights for a portfolio that has 156 shares of Stock A that sell for $45 per share and 130 shares of Stock B that sell for $30 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
Answer:
Total Stock price of Stock A = 156 x 45
Total Stock price of Stock A = $7,020
Total Stock price of Stock B = 130 x 30
Total Stock price of Stock B = $3,900
Hence, the total Stock price of Stock of A & B is $7,020 & $3,900 respectively.
Portfolio weight of Stock A = 7,020/ ( 7,020 + 3,900)
Portfolio weight of Stock A = 64%
Portfolio weight of Stock B = 3,900 / ( 7,020 + 3,900)
Portfolio weight of Stock B = 36%
Hence, the portfolio weight of stock A & B is 64% & 36% respectively.
A company has a merit pay plan based on the relative performances of workers teams. Each worker is a team gets the same wage as other team members, but those in more productive teams get higher wages. Which of the following would NOT explain why this incentive might be better than other methods for motivating workers to work harder?
A) If a worker works harder, it increases the productivity of other team members.
B) If a team works harder, it does not affect the productivity of other teams.
C) One worker can easily sabotage the productivity of other workers.
D) One team can easily sabotage the productivity of other teams.
Answer:
C) One worker can easily sabotage the productivity of other workers.
Explanation:
This is a form of compensation by merit that comprises the performance of a team as a whole, so this is a way of motivating both group work and individual work.
In the scenario above, we can see that this compensation plan would be effective in leveraging the performance of individual workers, and of teams, because if each member of the team is more productive, it will benefit the team as a whole. And this method will not affect the productivity of other teams, as each team will be encouraged and engaged to do the best job possible to achieve merit pay.
The alternative that does not correspond to the question that this incentive may be better than other methods to motivate workers to work harder, is the one that says that a worker can sabotage the productivity of other workers, as that worker is also likely to be engaged in not sabotaging the work of other team members, as the remuneration bonuses depend on the effort of the entire team to work together, and not just one employee.
Fiedler's contingency model of leadership has made an important and lasting contribution to the study of leadership because it: Group of answer choices suggests that organizations need to engineer the situation to fit the leader's preferred style. is the only theory to adopt the implicit leadership perspective. was the first theory to recognize the existence of leadership substitutes. discovered that effective leaders do not have a common set of competencies. is the only leadership theory to adopt a contingency approach.
Answer:
suggests that organizations need to engineer the situation to fit the leader's preferred style.
Explanation:
Fiedler is of the view that a person's leadership style is a product of experiences throughout their lifetime. So it is difficult to change it.
He suggested that instead of teaching a particular leadership style and forcing people to align with them, it is better to adjust the situation to an individual's leadership style.
The weakness of this is that the leader may be more effective in a particular situation and weak in another one
Petrus Framing's cost formula for its supplies cost is $1,700 per month plus $8 per frame. For the month of March, the company planned for activity of 610 frames, but the actual level of activity was 613 frames. The actual supplies cost for the month was $6,870. The activity variance for supplies cost in March would be closest to:
Answer:
The activity variance for supplies cost in March would be closest to $24 (Unfavorable)
Explanation:
The activity variance for supplies cost in March is calculated below
Activity variance = Planning Budget - Flexible Budget
= ($1,700 + ($8 * 610)) - ($1,700 + ($8 * 613))
= ($1,700 + $4,880) - ($1,700 + $4,904)
= $6,580 - $6,604
= $24U
The flexible budget is greater than the planning budget. Therefore, the variance is unfavorable (U)
The management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability: Year Income from Operations Net Cash Flow 1 $100,000 $180,000 2 40,000 120,000 3 40,000 100,000 4 10,000 90,000 5 10,000 120,000 The average rate of return for this investment is a.58% b.16% c.10% d.18%
Answer:
The average rate of return of this investment is 8%.
Note: Based on the information provided in the question, the average rate of return of this investment is 8% but it is not included in the option. Kindly confirm this from your teacher.
Explanation:
Note: The data in the question are merged and they therefore first sorted before answering the question as follows:
Year Income from Operations Net Cash Flow
1 $100,000 $180,000
2 40,000 120,000
3 40,000 100,000
4 10,000 90,000
5 10,000 120,000
The explanations to the answer is now given as follows:
Calculation of the average rate of return for this investment
Average rate of return (ARR) is a financial ratio that is used to determine the rate of return that is expected from an asset over its lifetime. ARR is calculated as the total income from the assets divided by the initial investment on the assets.
The average rate of return for this investment can be calculated as follows:
Total income form operations over five years = $100,000 + $40,000 + $40,000 $ $10,000 + $10,000 = $200,000
Average income = Total income form operations over five years / Number of years = $200,000 / 5 = $40,000
Average rate of return for this investment = Average income / Cost of Machine = $40,000 / $490,000 = 0.08, or 8%
Therefore, the average rate of return is 8%.
During a recent month, Company planned to provide cleaning services to customers for per hour. Each job was expected to take hours. The company actually served more customers than expected, but the average time spent on each job was only hours each. 's revenues for the month were
Answer: B. $1,050 more than expected.
Explanation:
The company originally planned to have revenue resulting from 30 customers and charging $30 for an estimated 33 hours.
Estimated revenue was;
= 30 * 30 * 3
= $2,700
However, in actuality, they sold to 20 more customers than estimated but only spent 2.5 hours each.
Number of customers = 30 + 20
= 50 customers
Actual revenue
= 50 * 30 * 2.5
= $3,750
Difference is;
= 3,750 - 2,700
= $1,050 more
Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year:
Common stock, $25 par value (no change during the year) $5,500,000
Preferred $5 stock, $100 par (no change during the year) 3,000,000
The net income was $502,000 and the declared dividends on the common stock were $55,000 for the current year. The market price of the common stock is $13.60 per share. For the common stock
Determine:
a. the earnings per share
b. the price-earnings ratio
c. the dividends per share
d. the dividend yield.
Answer:
a. the earnings per share is $2.28
b. the price-earnings ratio is 5.96 times
c. the dividends per share is $0.25
d. the dividend yield is 1.84%
Explanation:
a. the earnings per share
Earning per share is the net earning of the company against each outstanding share.
Earning per share = Net Income / Numbers of Outstanding shares
Earning per share = $502,000 / ($5,500,000/$25)
Earning per share = $502,000 / 220,000 = $2.28
b. the price-earnings ratio
Price earning ratio determines the impact of net income on market value of the share.
Price earning Ratio = Market Pice of stock / Earning per share
Price earning Ratio = $13.60 / $2.28
Price earning Ratio = 5.96
c. the dividends per share
Dividend per share is the value of dividend paid to each outstanding common share.
Dividend per share = Dividend declared / Numbers of outstanding shares
Dividend per share = $55,000 / 220,000 shares
Dividend per share = $0.25 per share
d. the dividend yield.
Dividend yield is the ratio of dividend per share and Market price per share.
Dividend Yield = Dividend Per share / Market price per share
Dividend Yield = $0.25 / $13.60 = 0.0184 = 1.84%
A manufacturing company has variable overhead costs of $2.50 per unit and fixed costs of $5,000 per month. Each unit requires 4 hours of direct labor and the company expects to produce 2,000 units each month. The standard overhead rate will be
Answer:
Standard Overhead rate is $1.25 per Direct labor hours
Explanation:
Total variable cost (2000 unit * $2.50) = $5,000
Total fixed cost = $5,000
Estimated Overhead cost = $10,000
Estimated Direct labor hour = 2000 unit * 4 hours = 8,000 hours
Standard Overhead rate = Estimated overhead cost / Estimated Direct labor hour
Standard Overhead rate = $10,000 / 8,000 hours
Standard Overhead rate = $1.25 per Direct labor hours
The Watkins Company is decentralized, and divisions are considered investment centers. Watkins specializes in sports equipment, and one division manufactures netting that is used for basketball hoops, soccer goals, and other sports equipment. The Netting Division reports the following information for a heavy-duty basketball hoop net:
Sales Price per Unit $18
Variable Cost per Unit 6
Contribution Margin per Unit 12
The Basketball Equipment Division can purchase a similar heavy-duty net from an outside vendor for $15.
Required:
a. Determine the negotiable range for the transfer price.
b. What is the minimum transfer price the Netting Division should consider if operating at capacity?
c. What is the maximum transfer price the Basketball Equipment Division should consider?
Answer and Explanation:
a. The negotiable range for the transfer price is lies between the $6 and $18 as the netting division is suffering from losses if the selling price is less than the variable cost per unit but at the same time the maximum price for transferring the product is equivalent to the selling price i.e $18
b. The minimum transfer price is $18 in the case when operating at capacity if it is below than the minimum transfer price is $6
c. The maximum transfer price should be equivalent to the purchase price that is purchased from the outside vendor i.e $15
